Episode summary
Brendan O’Connor – Alpha Opportunities in Australia at Regal Partners (EP.485)
Capital Allocators with Ted Seides
· · 57 min · Hosts: Ted Seides · Guests: Brendan O’Connor
Summary
Brendan O’Connor argues that Australia offers a distinct return stream because its market is unusually concentrated in financials and materials, with resources still a major part of the opportunity set. He says the country’s superannuation system, now around A$4 trillion, has pushed investors toward passive and internalized management, which has slowed adoption of alternatives and created room for Regal Partners to specialize.
He traces Regal’s growth from a A$1 billion long-short shop in late 2016 to a A$21 billion multi-strategy alternatives firm spanning hedge funds, credit and royalties, real and natural assets, and growth equity. The firm’s edge, he says, comes from originating opportunities directly, seeing pricing across public and private markets, and using deep sector expertise in areas like resources and agriculture to structure deals others cannot. That includes debt, equity and royalty solutions, plus ownership of water rights in Australia.
O’Connor also emphasizes that building the platform required more than performance. He highlights a four-step investment process, a centralized risk and operating platform, and a culture built around founder-like accountability. Going public in June 2022 improved governance, distribution and acquisition currency, though it also added scrutiny and board management work. His long-term ambition is less about a hard AUM target than about expanding into a more recognized global active manager with strong returns.
Key takeaways
- O’Connor says Australia’s market structure and superannuation system have created a favorable opening for alternatives, especially for a specialist like Regal.
- Regal has grown from about A$1 billion in 2016 to A$21 billion by combining organic growth, strong performance and acquisitions.
- He says Regal’s advantage is origination: the firm wants to be the first call on new equity, debt, royalty and water-rights opportunities.
- O’Connor’s four-step underwriting process starts with valuation, then macro, catalyst and the firm’s edge.
- He says the public listing in June 2022 improved governance, fundraising reach and acquisition currency, even as it increased board and media scrutiny.
Notable quotes
“Australia uniquely provides a very idiosyncratic return series that is diversifying to what you'd find elsewhere”
“there's been a slower adoption to alternative investment strategies, which is really Regal's sweet spot”
“We're now about 21 billion Aussie. We're diversified across long short equities, cred and royalties, real and natural assets including things like water, agriculture, carbon and growth equity”
“The more businesses that we see, the more we can have informed conversations about whether we're a debt provider, equity provider, or royalty provider”
“The scoreboard doesn't lie. Performance is best viewed through a risk adjusted lens”
How the episode opens
Australia uniquely provides a very idiosyncratic return series that is diversifying to what you'd find elsewhere. If you have a look at the Australian marketplace, financials and materials, materials, think of resource companies represent about 55% of the market. That's very different to many other equity markets around the world.
the nature of the Australian economy. We're probably the 15th largest economy in the world. We sit just below South Korea from an economy size.
We've got half the population of South Korea as an example. So, a GDP per capita is double theirs. There's market structure that means that we're being able to generate alpha from a section of the market that an offshore investor perhaps just is less familiar with.
Part of the answer to that is being able to explain some unique structural elements to the Australian market. Australia is an interesting miracle in this regard. Some of those micro and macroeconomic reforms that the government introduced in the late 1980s translated into the introduction of a superenuation guarantee levy in 1992.
it first started where 3% of everyone's salary was put aside as pension savings. That rate is now 12% of everyone's salaries. There are three key things that have shaped the pension system in Australia.
There is a multi-deade trend to internalize asset management capability rather than using third party providers. There's an acceleration of a pre-existing trend around passive and ETF fund investing. Obviously, that's been a good trade for them, but it misses out on some of the positive aspects of active management.
It also means there's been a slower adoption to alternative investment strategies, which is really Regal's sweet spot. Regal's edge in providing investors not just in Australia but around the world access to the best of Australia's alternative investment strategies inherently or necessarily means that we need to be originating those opportunities.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- australian markets
- alternatives investing
- alpha opportunities
- investment process
- risk management
Companies and tickers mentioned
- Regal Partners
Watch the episode
Watch “Brendan O’Connor – Alpha Opportunities in Australia at Regal Partners (EP.485)” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Capital Allocators with Ted Seides, this episode and its artwork belong to Ted Seides – Allocator and Asset Management Expert. Octagon is not affiliated with the show; this page is an independent summary.
